TOP TEN ESTATE PLANNING PITFALLS
Neal A. Deutsch, CFP®
Published in Rivertown Journal, January 2007
 With the beginning of the New Year, along with getting ready for the tax man,
most folks become acutely aware and begin to reflect on their financial and
estate standing. When beginning to plan for leaving their property to heirs,
known as inter-generational planning, people are confronted and frightened
by the high estate tax rates and rush to utilize sophisticated estate planning
techniques to avoid them. Yet, there are some simple moves that can frustrate
these elaborate plans and are easily avoided. Here are some of the common mistakes
to watch out for.
(1) Not Funding Your Living (Revocable) Trust: Many individuals have attempted
to install a modern estate plan and use a living trust. Yet, too many fail
to transfer the necessary property to the trust, which is like having a musical
conductor waving his arms without an orchestra.
(2) Too Much JTWROS Property: Titling assets under joint-tenancy-with-right-of-survivorship
does avoid probate, yet does not avoid estate taxes. Further, improper titling
can frustrate an estate plan because property titled JTWROS will go to the
surviving joint tenant regardless of what a will or trust instructs.
(3) Leaving Too Many Assets to a Surviving Spouse: Leaving
all your property to your spouse does avoid estate taxes at the first death
due to the unlimited
marital deduction. However, such a plan wastes the first-to-die spouse's applicable
exclusion amount (previously called the “unified credit”. Improper
dispositive provisions may lead to unnecessary erosion of the estate due to
tax ramifications.
(4) Not Equalizing Assets Through Gifts Between Spouses: This is another example
of improper titling and the possible misuse the applicable exclusion amount.
Having all property titled in one spouse’s name may lead to taxation,
estate shrinkage, and a virtual nightmare for the surviving spouse if the assets
were in the decedents name only.
(5) Not Having a Will: Do we really need to say more? Probate property of
the decedent will pass under the state intestacy laws at possible increased
costs. Personal wishes, whether written or oral, will most likely not be followed
in the absence of a will…and anybody can claim the decedent “promised
them” certain assets upon their death. This situation leads to a nightmare
for those you leave behind, as well as a delay in distribution of assets.
(6) Improper Ownership of Life Insurance: Most policies are owned by the insured,
payable to the insured's estate or survivors and therefore are included in
the owner's taxable estate. Policy owners should consider giving policies directly
to the beneficiaries or transferring them to an irrevocable trust to avoid
a potentially large, unexpected estate tax bite.
(7) Being Donor & Custodian of a UGMA/UTMA Account: Creating and contributing
to a UGMA/UTMA account of which you are the custodian will cause the account
to be includible in your estate and possibly subject to painful estate taxes.
(8) Not Knowing Where All The "Stuff" Is: A scattered estate plan
by a secretive decedent may cause some assets to be left uncollected, undistributed
and even lost. Another cause for nightmare for those you leave behind.
(9) Naming the Wrong Executor: The tasks facing an executor are often formidable
and demanding in all but simple estates. Spouses and close family relatives
are under enough burdens. A professional or trust company is often a better
choice.
(10) Not Periodically Updating an Estate Plan: People don't like to think
about dying and therefore want to set up an estate plan and be done with it.
However, many economic, health and family changes require revising your estate
plan. It’s best to work with an experienced financial planner who can
help make the necessary modifications.
Understanding and avoiding these gaffes can make sure that your wishes can
be fulfilled and minimize the tax bite for your heirs. Be sure to work with
an experienced Certified Financial Planner™ and estate attorney to help
you achieve your estate planning goals.
Neal A. Deutsch is a Certified Financial Planner™, Registered
Securities Principal and President of Chestnut Investment Group in Suffern,
NY, helping people with financial planning since 1984. Please feel free to
call Neal at 845.369.0016 or email him with your questions at neald@chestnutinvestment.com
Feel free to visit his website at www.chestnutinvestment.com
| 
